Investment banking is one of the most prestigious professions in the finance industry. It involves working with organizations to facilitate capital funding through investments, which is accomplished through activities such as underwriting the issuance of stocks and bonds. To build a strong career as an investment banker, consider pursuing a Master of Science in Finance (MSF).
With the necessary qualifications and experience, you can expect to earn a high salary as an investment banker. However, you can also expect to work long hours, especially at the beginning of your career.
The role of investment bankers in the stock market
Investment banks provide a variety of financial services to individuals, corporations, and government entities. They essentially act as financial advisors, assisting their clients with stock and bond offerings, as well as mergers and acquisitions. Investment bankers are an integral part of the stock market because they provide capital by selling equities and/or debt instruments.
Most investment banks have investment research departments or work with third-party firms that help them monitor and analyze trends in capital markets. This allows them to make strategic financial decisions for their clients.
Before we get into the types of jobs available in investment banking, let’s make sure we have a thorough understanding of the specific financial services that these firms provide:
Stock and bond offerings
An initial public offering (IPO) occurs when the shares of a company become available for purchase to institutional and retail investors. This is also referred to as “going public.” When a company has an IPO, there’s usually an investment bank that guides it through the process. The act of raising investment capital on behalf of an organization is known as underwriting.
The investment bankers in charge of underwriting will establish the terms of the offering, such as the price of each share. They’re also responsible for presenting the stock to prospective buyers, which could be other corporations or simply individuals looking to make an investment. An important factor in this stage is ensuring that the investment banker accurately represents the client’s business and provides data which supports the decided-on price. Throughout the entire IPO process, investment bankers must work in compliance with industry rules that are established by financial regulatory agencies, mainly the U.S. Securities and Exchange Commission (SEC).
If the investment bank does a good job of setting the price and managing the IPO for its client, investors will buy stocks, which turns into funding for the business. The most difficult part of the underwriting process is setting a price for the stock. Since it’s the investment banker’s job to create as much capital funding as possible for the client, they need to sell as many competitively priced shares as possible. But if they price the shares too high, investors might become disengaged and not buy any. Alternatively, if the stock is too cheap, the amount of shares sold might not meet the client’s funding requirements. To be a successful underwriter, the investment banker needs to be well-versed in finance, the securities industry, and economic trends in various markets.
Mergers and Acquisitions
A merger occurs when two companies become one organization. An acquisition occurs when one buys out another. Like IPOs, investment banks guide organizations through these processes. Whether they’re joining forces with another business, being sold, or acquiring a separate entity, investment bankers work to make sure that their client benefits financially from the deal.
Let’s say a company is planning on buying out one of its competitors. It will hire an investment bank to help with the acquisition process. How much is the company currently worth? How much is it projected to earn in the next year? What are the costs associated with running the business? These are some of the questions the investment banker will seek to answer to make a good recommendation.
They’ll present key information about the business to the client, such as its valuation and the minimum amount they’re willing to sell for. Then, they’ll help the client put together a range of prices that they’re willing to pay for the acquisition, as well as any applicable terms and conditions. Finally, they’ll assist with closing the deal. If the investment banker does a good job, their client will confidently know whether or not the acquisition is worth it, and if they decide to move forward, they’ll purchase the business for the cheapest price possible.
Now, let’s get into the different types of jobs you might have if you pursue a career in investment banking.
Common jobs and salaries in investment banking
The term “investment banker” applies to many different positions in the financial sector. While these jobs share similar responsibilities, there are various areas in the industry you can choose to focus on, depending on the type of work you want to do. It’s important to keep in mind that while some entry-level jobs only require a bachelor’s degree, many opportunities in the field will only be available to those with a master’s degree.
Here are some of the most common jobs in investment banking today:
Analysts are responsible for doing research and producing reports for senior leadership at an investment bank. Their work involves a lot of reading and generating reports. They’re also tasked with creating a “pitch book” for clients, which is essentially a presentation or report designed to attract prospective clients. It includes visual aids that are used to help persuade prospects during sales pitches.
For example, analysts might be expected to show the details of a successful IPO that the team recently managed for a client. This helps set expectations for potential clients and brings in new business for the firm. Many college graduates become analysts at investment banks, since it only requires a bachelor’s degree to be qualified. The average annual salary for an analyst in the first three years of their career is $90,000.
Associates share a lot of the same tasks as analysts (research and reporting), but they have more responsibilities and work more closely with upper management. They may also work for supervisors in an assistant capacity, putting together schedules, arranging meetings, and screening their phone calls. The more time you spend working as an associate, the more you’ll be exposed to the processes and strategies that professional investment bankers use.
After several years of doing rudimentary work and learning from supervisors, you’ll be eligible for promotions to higher-level positions. In the first four years of working as an associate, you can make around $150,000 a year. Keep in mind that at most investment banks, you’ll need a master’s degree to be considered for an associate position.
Vice presidents are considered middle-management employees at investment banks. Their duties include supervising the activities of analysts and associates, as well as communicating directly with clients. Vice presidents have a say in the deals that are made for the investment bank’s clients. They use their expertise to help structure capital funding deals and develop strategies to attract investors.
You’ll need to complete a master’s degree program and have many years of experience working in the industry before becoming eligible for this position. The average vice president for an investment bank earns an annual salary of $300,000.
Managing directors sit at the top of the investment banking hierarchy. Their main goal is to bring in new business. In other words, they’re the main salespeople for the investment bank. They’re also usually the main point of contact for high-level clients, which means that they’re often responsible for maintaining healthy customer relationships. Generally, the managing director oversees all the investment bank’s employees and operations, while also providing their expertise as needed when their employees are arranging deals for clients.
To become a managing director, you’ll need a master’s degree as well as many years of experience and notable success in the field. At this level, the average annual salary is $500,000. However, there are many managing directors who make well over a million dollars a year.
A day in the life of an investment banker
Working as an investment banker will come with long hours and stressful days. It’s likely that you’ll be working on Wall Street, since that’s the home of investment banking. Even if you’re located elsewhere, you’ll at least communicate frequently with people on Wall Street via phone calls and emails. The day-to-day routine of an investment banker depends on a variety of factors, starting with your job title. Obviously, the workday for an analyst will look much different from that of a managing director.
Since most investment bankers begin their careers working in entry-level positions, let’s take a look at a typical day in the life of an analyst:
Beginning of the day
Your mornings will begin with checking your email inbox for new messages and looking at your calendar to see which upcoming meetings you need to prepare for. Most analysts start their day by responding to emails from clients and sending status reports to their supervisors. Managing directors are very strict about responding to emails.
You’ll probably have revisions on your reports or pitch books that need to be addressed, since your supervisors will usually review your reports the evening prior. Typically, analysts on the East Coast get into the office around 9:30 in the morning. Typing out emails, making revisions, and attending meetings will usually last until about lunchtime.
Middle of the day
Analysts typically have a lunch break that is 45 minutes to an hour long. When you get back to your desk, you’ll have more revisions to address and emails to respond to. It’s important to note that analysts are only assigned one deal at a time. Once your reports and presentations are approved by your supervisor, you’ll be given a new prospective client to start creating a pitch book for.
End of the day
Depending on how late your supervisor stops working, the revision process could continue through the evening. Most of the evening will be spent collaborating with desktop publishing crews (DTP). This department consists of software and design experts whose job is essentially to make the reports you’ve worked on all day look presentable to clients and directors. If you keep getting revisions, it’ll be your job to communicate them to your DTP so that the client doesn’t end up reading an old version of the report.
Pursuing a career as an investment banker
Once you’ve decided that investment banking is the right career for you, your first goal should be to acquire a master’s degree. Again, if you currently have a bachelor’s degree, you can apply for a job as an analyst, but you most likely won’t be as attractive as candidates who hold MSFs. Keep in mind that even if you do get an entry-level job at an investment bank, you might reach a point where you need a master’s degree to advance to the next stage of your career.
Northeastern University’s Online Master of Science in Finance
To create great opportunities for yourself in the world of investment banking, consider enrolling in Northeastern University’s Online MSF program. This degree, which can be earned in as few as 16 months, will give you the knowledge and skills necessary to put you on the path toward becoming the managing director of an investment bank. You’ll take courses taught by industry professionals that will advance your expertise in driving financial strategies, maximizing revenue, minimizing risk, and increasing shareholder value.
To learn more about how Northeastern’s Online MSF program can help you become an investment banker, connect with an enrollment advisor today.